On the morning of Friday, February 28, 2020, there were 2848 deaths and 83386 cases of SARS-CoV-2 (coronavirus) in 44 countries around the globe (Source: WHO, www.who.int ) due to the disease it causes called COVID-19. These numbers are increasing at an impressive speed, while the vaccine that will protect the earth’s population from the specific type or coronavirus will be delayed appearing and be made available to the public.
The open societies of the West whatever measures of containment and control of the spread of the virus to take they cannot implement the Chinese methods of controlling the spread of the virus, which are based on hard measures and bans. The planet is facing a new type of challenge, with serious risks to public health and the global economy.
by Thanos S. Chonthrogiannis
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The impact on the global economy
The global capital and money markets respectively, albeit late, began to price the economic consequences of con virus. First, the shares of companies whose turnover is very dependent on international supply chains (e.g. cars, electronics, etc.), airlines, raw material companies, oil trading companies (< $50 per barrel of oil in New York) were affected and given that all based on growth or not of the Chinese economy.
In the second stage, capital was withdrawn from high-risk government bonds, which were then invested in theoretically safe (low-risk) government bonds such as US Federal Government bonds ( the yield on 10-year U.S. government T-bond fell to a new historic low last week), the dollar (where it was constantly revalued last week) and gold (which price last week hit a record high of seven years).
The magnitude of coronavirus’s impact on the global economy remains unknown. This is mainly due to two reasons:
- Since it is not possible in advance and so far, to predict the time peak and the degree of spread to be achieved by this virus.
- The measures imposed to limit the spread of virus, e.g. border closures, transport disruption, etc., have a direct impact on the central fabric of the development of the world economy, which is the largest in-depth and wider international division of work that has existed to date in the history of humanity.
Measures to prevent and restrict the spread not only of this type of coronavirus but any type of epidemic always have an impact on economic growth and the degradation of the interrelated links which connect the global labour sharing.
Global economic crisis just around the corner?
Last week international markets had their worst week since the outbreak of the global financial crisis since 2008. Shares in U.S. stock markets fell 10% from record highs at the beginning of February.
The economies of countries that base their growth on tourism, food services, services and consumption will feel in the coming months, and especially towards the summer, the direct consequences of the global spread of coronavirus.
This will be because of the forced change in consumer behaviour of a large proportion of the world’s population with a high likelihood to take place large deficits in projected tax revenues, sparking new and/or expanded budget deficits in state budgets.
The consequences that are beginning to emerge on the Euro zone economy and by extension the EU and after the difficult times experienced initially and continues to experience China’s economy create a climate of expected global economic crisis.
Italy’s GDP in Q1 2020, and because of the consequences in consumption by the coronavirus, is expected to decline for the second consecutive quarter and after the decline suffered in Q4 2019. The same is expected to happen in the Second Quarter (Q2) of 2020 (GDP decrease) in Italian GDP.
This will mean from an economic technical point of view that Italy will officially enter in a recession stage for the fourth time since the outbreak of the global financial crisis of 2008. The consequence of this is the creation of serious economic problems for the Euro area economy and the EU equally.
The fact that Germany’s economy, due to the drastic decline in revenue slumped from the reduced exports of German products to China, will be the second cornerstone of the problems for the Eurozone economy, along with the expected official recession of the Italian economy.
Italy’s export economy and industry, respectively, is highly interdependent with the respective economies and industries of Austria, Hungary and Germany, further exacerbating the problems of Euro area economy.
These looming problems in the Eurozone economy will necessarily bring back to the fore the debate on the effectiveness or not of the non-application of fiscal austerity in state budgets with aim to help economies of the Eurozone member countries such as Italy.
The ECB’s monetary policy measures implemented are not enough and dynamic budgetary interventions on the part of the German Government are likely to be needed to help the entire economy of Germany, Italy and the Eurozone respectively.
Italy, due to entering an economic downturn, will require its discharge by means of a formal Eurogroup decision, from certain budgetary constraints imposed on it to support its economy due to the consequences of the spread of the coronavirus.
The European Council’s apparent inability to reach agreement and implementation of a decent European budget raises reasonable concerns among investors about the collective speed of action and effectiveness of Euro area and the EU leaders respectively.
